CEG may contest electric rate cut

Legislation aimed at lowering electric rates for 1.1 million Maryland consumers starting next year may face a court challenge if the proposed merger by Constellation Energy Group and a Florida utility owner falls apart amid regulatory delays, legal experts say.

Constellation, the corporate parent of Baltimore Gas and Electric Co., in a recent regulatory filing questioned the legality of a state law forcing the utility to forgo $386 million in fees it previously was allowed to collect from customers. The legislation passed in June ordered BGE to stop collecting certain fees for 10 years in order to reduce a 72 percent electric rate increase.

Constellation contends the money was part of a broader $600 million, 10-year concessions deal it had offered the state in exchange for winning approval for its merger with FPL Group Inc. The company reasoned that merger-related cost savings would make the givebacks possible. Absent the merger, however, the company may be able to sue to get the money back on the grounds that the legislation constitutes an illegal taking of property, legal experts said.

At stake for BGE customers is a package of givebacks that add up to a roughly 14 percent reduction in current residential distribution rates if the merger goes forward.

For lawmakers, it could mean another courtroom embarrassment over legislation that was aimed at protecting consumers from a huge rate increase. The Maryland Court of Appeals recently struck down a separate provision firing the state's four utility commissioners for failing to protect consumers and allowing the rate increase to move forward without hearings.

Senate President Thomas V. Mike Miller and House Speaker Michael E. Busch did not respond to phone messages yesterday. But legislative staffers say the $386 million in give-backs called for in the legislation was never linked to the merger.

"When the bill was passed, the expectation was that the $386 million was going to be available notwithstanding the fate of the merger," said Warren G. Deschenaux, the General Assembly's chief fiscal analyst. "This was never intended certainly from the standpoint of the General Assembly to be contingent on the merger."

The chances of another legal showdown over electric rates were heightened last week when FPL chief executive Lewis Hay III forcefully suggested the merger might be scuttled unless roadblocks to regulatory approval aren't dealt with quickly.

The timing and fate of merger hearings is uncertain because of the recent Court of Appeals ruling.

The court decision said the commission cannot be fired, but it left in place a provision that forbids the current members from ruling on the merger, leaving the whole process in doubt.

"Frankly, there is a limit to how far I'm really willing to go with this," a frustrated Hay said during a luncheon presentation with analysts Tuesday.

Aug. 24 filing

Whether BGE customers start seeing the $386 million in savings show up in their bills Jan. 1 may rest on the merger's status.

Constellation declined to say whether it would take legal action on the matter.

But in an Aug. 24 filing with the state Public Service Commission, company lawyers argued for a speedier merger hearing schedule, in part to render a potential legal challenge to the legislation moot.

"Although [Senate Bill 1] mandates a significant portion of the $600 million offer regardless of the merger - namely the $386 million in rate reductions ... there is substantial uncertainty as to the legal efficacy of such provisions," the filing states. "Consequently, a schedule that permits a commission decision in 2006 could render the issue moot and obviate the need for judicial review."

The PSC rejected Constellation's motion for a faster hearing schedule. Critics of the merger say the potential for further legal challenges adds to the uncertainty around the hearings.

"From the language of Senate Bill 1, it certainly looks to me like the intention was that ratepayers would get the $386 million even if the merger doesn't close," said Bill Fields, an attorney with the Maryland Office of the People's Counsel, which advocates for utility consumers. " ... But the constitutionality of the $386 million is one of the uncertainties floating around with this."

The people's counsel is evaluating whether the potential downsides to the merger outweigh the benefits of getting the promised $600 million in rate relief. Some consumer groups have questioned whether BGE could get hurt financially as Constellation expands the riskier unregulated side of its business.

At issue in the legal dispute are two fees BGE is allowed to collect from customers that together equal about $38.6 million annually.

About $20 million comes from an administrative charge BGE collects for serving as the electric provider of last resort, as part of the move toward deregulation. The remaining $18.6 million is a fee it collects to pay for the future decommissioning of its nuclear plants.